Entering into a new business relationship
This information is for businesses working in the building and construction industry. It covers steps you can take to protect your business before taking on a new client, supplier or contractor.
Taking on a new client or contractor
Do you know what to do before you start doing business with a new client or contractor? These steps can help you to reduce the risk of future disputes or non-payment.
1. Do your research
Doing a background check on the client or contractor can give you peace of mind or alert you to potential issues.
Start by doing a simple internet search using the client's contact numbers and addresses. It's important to have a physical street address to ensure you can locate the client if necessary. This could help if something goes wrong and you need to take legal action.
Consider asking questions such as:
- why they’d like to work with you
- how they found your business
- how they like to communicate
- what their budget and timeframes are
- whether they will be doing the work themselves or sub-contracting to someone else
- if they have the right insurance for the situation
- if they have any specific requirements in relation to the job?
Ask your contractor for references and details of previous work they have completed. Consider going to see an example of their finished work. Contact referees and ask questions such as:
- would they recommend the contractor?
- what kind of work the contractor completed for them?
- did the contractor finish on time and within budget?
- were there any problems?
- did they follow Australian building safety standards?
- did the contractor listen to concerns and willingly make any necessary changes?
- were they satisfied with the contractor’s work and how it was done?
- were there any issues with communication or any other problems?
If the client or contractor is a business or company, there are other checks you can do:
- Search for their Australian Business Number (ABN) on the Australian Business Register.
- Find free information about companies, business names and licences from the Search ASIC registers on the Australian Securities & Investments Commission's (ASIC) website.
- Search ASIC’s banned and disqualified register for information on people or organisations.
- To find out if the person is bankrupt, search the Australian Financial Security Authority’s Bankruptcy Register Search (BRS).
- If the client is a company, check if they’ve gone into liquidation using ASIC’s Published notices search.
- Ask your accountant to run a credit check on the person under other possible business structures, such as a: business, partnership, company and sole trader.
2. Employee or contractor?
The Independent contractors decision tool can help you work out whether your worker is an employee or contractor.
3. Discuss payment
Chasing money can be a difficult and time consuming task. Discussing money early on can give you an indication of how likely it is that you will be paid.
To give you the best chance of getting paid, consider:
- taking a down-payment before you start a new job, with the balance collected on completion
- ensuring your invoices clearly state the payment terms and options
- offering as many payment options as possible
- offering a discount for early payment
- sending invoices out as soon as the job is complete
- sending payment reminders.
Check out our preventing unpaid debt information for more tips.
4. Create a contract
Whether you’re working with a large company on a commercial project or a private client for a small renovation, you should always have a contract.
Verbal contracts are legally binding, but can be risky so it’s best to get your contract in writing. If a written contract isn't possible, make sure you have some documentation that will help you identify what was agreed: emails, quotes, specifications and even notes about your discussions.
Your contract should specify:
- the scope of the work
- commencement and completion dates
- inclusions and exclusions
- payment terms
- an arrangement for settling disputes.
If you don’t know what type of contract to use or what to include, contact a building association, or consider getting legal advice.
Tip: Make sure you understand and agree with any clauses about delays (for example clauses that say you will only receive payment when the client is paid).
5. Understand your insurance obligations
There are specific types of insurance required of businesses in the construction industry. These often vary depending on your business type and state and territory, but can include:
- domestic building insurance
- professional indemnity insurance
- public liability insurance
- structural defects/builders indemnity insurance.
In some cases the client may be responsible for insurance - for example, if the client is an owner-builder.
Be sure to discuss insurance with the client and get some advice from an insurance broker or your industry association if you’re not sure.
For more information, read our insurance and workers’ compensation page.
5. Licences, insurance, workplace health and safety (WHS)
Licensing, insurance and WHS requirements differ depending on your state or territory. It's important to discuss these obligations with your client or contractor.
You can find information on your licensing, insurance and WH&S responsibilities in the Building and construction industry fact sheet.
Engaging with a new supplier
Entering into an agreement with a new supplier is a big decision, so it’s important to consider all your options to get the best outcome for your business. Read more on how to protect your business before taking on a new supplier, such as:
- finding and choosing a reliable supplier
- undertaking research
- negotiating a contract.